There is a growing trend towards repurposing real estate assets in Scotland, with former offices and retail units re-emerging as hotels and leisure facilities. Repurposing often comes with legal issues and challenges for developers to overcome. We consider some here.
Vacant possession
If an asset isn’t already vacant, obtaining vacant possession is key to progressing development. Multi-occupancy buildings and estates will likely have leases with differing expiry dates, and some leases may even contain break options.
Maintaining an overview of lease expiry and break dates – and the date by which a notice to quit or break notice must be served – can help ensure that the requisite notice is given to ensure leases are properly terminated and redevelopment plans kept on track.
If serving a formal notice is missed, you may still have options. We have discussed this in our recent blog here.
Dilapidations
Unless the lease contains a payment obligation clause, whereby a tenant must pay the cost of putting the premises into the condition stipulated in the lease regardless of whether or not the landlord intends to carry out the repair works, the landlord’s intentions can be crucial to the extent of the sums recoverable from its former tenant.
Redevelopment can sometimes negate or substantially diminish the actual loss suffered by the landlord, particularly if the premises will be stripped out and repairs will be superseded by part of the redevelopment works. In that case, tenants may point to a landlord’s redevelopment plans to argue that the true measure of loss ought to be the diminution in value of the building, i.e., the difference in the value of the building because of the tenant’s failure to comply with its repair obligations under the lease.
That means that dilapidations settlement sums may be lower than expected by landlords if its redevelopment plans are widely publicised, and so this should be factored into projected finances and plans for redevelopment, including planning applications.
Access rights
Neighbouring properties sometimes have servitude rights of access over the property in question, and these rights must be considered and, where necessary, protected when assets are repurposed. If the access route is physically interfered with or redirected without the neighbouring proprietor’s consent, action may be taken against them to prevent them from obstructing access or compel them to reinstate the access where it has already been interfered with.
Similarly, if the property relies on rights of access over neighbouring land, early consideration should be had to whether the access rights are sufficient for the repurposed asset, including for increased traffic from construction vehicles whilst redevelopment is underway. There should also be careful regard to whether any other rights stem from neighbouring properties, including the right to parking, service media, and drainage – and whether these are still sufficient for the repurposed asset.
Nuisance
Neighbours can use the law of nuisance to stop a development if their enjoyment of their property will be sufficiently affected. Heading that risk off at the pass is important.
For more advice on repurposing real estate assets in Scotland, please do not hesitate to get in touch with our Real Estate Litigation team or your usual Brodies contact.
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